Many individuals aspire to accumulate a million dollars through investment, and several strategies can guide them toward this goal. One effective method is to invest in a diverse selection of quality stocks and retain them over the long term. While this approach is accessible to anyone, it demands both time and effort.
A straightforward investment tactic allows for exposure to 500 of today’s top stocks: purchasing shares of an exchange-traded fund (ETF) that tracks the S&P 500 index. By doing so, investors can gain access to the largest companies propelling today’s economy.
A notable low-cost option for investors is the Vanguard S&P 500 ETF (VOO). The question arises whether this ETF can contribute to making a person a millionaire. To understand this possibility, examining the characteristics of ETFs in general is useful. These financial products enable investment in numerous stocks across a specific theme, which might be organized by industry or investment style. ETFs offer an effective way to mirror the performance of significant benchmarks like the S&P 500. For instance, when the S&P 500 increased by 23% in a particular year, ETFs tracking it mirrored that performance.
Investing in an ETF offers immediate diversification either within a specific theme or, as in the case of an S&P 500 ETF, beyond individual industries or themes. ETFs are traded daily like stocks, so investors can buy or sell them similarly. A key distinction is that ETF management fees are expressed as an expense ratio, with a preference for ratios under 1% for better long-term gains. The Vanguard S&P 500 ETF has a low expense ratio of 0.03%.
Focusing on the Vanguard S&P 500 ETF specifically, this fund is notably exposed to the technology sector, which has recently thrived amid heightened interest areas such as artificial intelligence and quantum computing. Information technology represents the most substantial segment of the index and fund at over 32%. However, the ETF still provides diversification with exposure to 11 distinct industries.
Another advantage is the flexibility of the index and the Vanguard ETF that tracks it, both of which get rebalanced periodically to include relevant companies and sectors. This ensures that investors remain exposed to leading companies at any given time. As an example, the index added Palantir Technologies, a company specializing in AI-driven software with rapidly growing earnings, and the Vanguard ETF mirrored this inclusion.
The question remains: Could investing in the Vanguard S&P 500 ETF lead to a million-dollar portfolio? Considering the S&P 500’s historical average annual return of 10%, an investment of $1,000 in the Vanguard ETF today, supplemented by monthly additions of $300 for 35 years, could potentially exceed $1 million.
Thus, reaching a million-dollar milestone through the Vanguard S&P 500 ETF is indeed feasible over time. However, solely focusing on one stock or ETF—even one tracking a robust benchmark—is not advisable. A diversified strategy encompassing various quality stocks and ETFs is more likely to yield significant returns over time. Within a diversified portfolio, the Vanguard S&P 500 ETF can serve as a strong investment option aiding wealth accumulation.
